COMPENSATION ISSUES IN MALAYSIA

1. PERFORMANCE AND COMPENSATION MANAGEMENT
(HRM 751)
COMPENSATION ISSUES
AIDA AZREENA ROSLI
(2012698128)
Prepared for:
Assoc. Prof. Dr Roshidi Hassan

2. OUTLINE
1. Global Compensation Issues
Remittances by legal foreign workers
Factors of remittances
Positive Impact of Remittances
Negative Impact of Remittances
2. Competency Based Pay
Different between Job based and Competency based Pay
Why use competency based pay
Productivity linked with system
3. How to Attract and retain Gen Y
Job hopping
About fresh grad

3. Compensation System Design
Issues
Third-Country Nationals
Host-Country Nationals
Employees who are not citizens of their
home or host countries - for example, a
Swedish national employed by a Belgian
multinational company and working for
that company in Spain.
An employee’s host country is the
country to which an expatriate or
TCN is transferred.
Global
Compensation
Issues
Expatriates
Employees who are resident outside their country of citizenship (Home
Country). Typically employees on a traditional assignment of 1 – 5 years with
the expectation of returning to their home country.

4. INTRESTING FACTS!!!

5. Compensation Issues in Global Relocations
Malaysia
United
Arab
Emirates
(UAE)
China
• Work permit categories typical in Malaysia: Professional Visit Pass
(PVP), Employment Pass (EP).
• Foreign nationals must remain on home payroll while in Malaysia on PVP.
• Foreign nationals on an EP may be placed on either local or overseas payroll.
• The minimum salary level MSL in Malaysia only applies to EP holders. MSL is
RM5,000 per month, and applies to both local hires and international assignees.
• A minimum salary of AED4,000 per month (AED3,000 if housing is provided by the
employer) is required to sponsor dependent family members for residence in the
UAE.
• The benchmark for females sponsoring dependent family members is higher. There
is no specific written guidance and is discretionary (a minimum of AED10,000 per
month is expected at the very least). This applies to both local hires and international
assignees.
• Foreign nationals placed on the payroll of a Chinese entity require a ‘Z’ Visa and a
work and residence permit.
• Minimum salary RMB 1,500 for the city of Shenzhen is the highest minimum
monthly salary requirement others depends on location
• Minimum Salary requirements are the same for local hires and international
assignees across China.

6. India
Japan
Canada
• The Employment ‘E’ Visa (typically used by ICTs and Local Hires) has an annual
minimum salary requirement of USD25,000
• Renewals in many parts of India (the rules vary by local jurisdiction) require proof
of compliance with tax withholding requirements
• There is a minimum salary requirement of 200,000 JPY per month for both local
hires and international assignees.
• This is the minimum salary requirement to process a work permit application in
Japan. Other minimum salary requirements may apply under relevant Labor
• Law regulations. For example, an assignee’s salary must be equal to that of a
Japanese worker in the same employment category
• There are minimum salary requirements for Canada that may differ depending on
the immigration category.
• Minimum salary is position specific and must be comparable to what a Canadian
national would earn in a similar position
Del Rey, Bernsen &Loewy, July 24, 2013

7. Remittances by legal foreign workers
Workers’ remittances are narrowly defined as current transfers by migrants who
are employed in new economies and considered residents there. Workers'
remittances is of considerable interest to economists and analysts because it can have
a significant impact on poverty reduction and / or can finance economic growth in
receiving economies for receiving country.
The mail online, 11 November 2013

8.  Remittances by legal foreign workers doubled from RM10 billion in 2009
to almost RM20 billion 2013, Deputy Finance Minister Datuk Ahmad Maslan.
 3.2 million foreign workers of which 1.9 million are legal workers and an
estimated 1.3 million are illegal. Total amount remitted by illegal
estimated to be more than RM20 billion.
 Total amount remitted from Malaysia about US$6.24 billion is slightly over
1% of the amount remitted worldwide by 232 million international
migrants, which is 3.2% of the world’s population.
Top three countries are in Asia and the third largest is a Southeast Asian
country shows there is a strong cross-border movement of money in Asia
and also shows there is a huge supply of human capital that is available.

10. Factors of remittances
Altruistic
feelings
• Migrant may be a motivation for transfer income to
family and relatives left behind. The migrant feel cares
about poverty of their family and diversifying the
resources of income (Kaijage,2008)
Investment
for the
future
• Fixed capital, public assets or to be eligible to other
resources in the community. Migrants may have
investments that need to be tendered while they are
away , in this case they need family members to act on
their behalf as trusted agents (Chami et al, 2003)
Family
contract
• Between migrant and those at home relies on the
notion of risk diversification. It become convenient
strategy for a household member migrates to a noncorrelated labor market to diversify economic risks by
entering a type of contract agreement with the
household left behind. (Amuedo-Doranates &
Pozo,2002)

11. Positive impact of remittances
 Remittances may move countercyclical relative to the economic cycle of the
recipient country. Remittances may rise when the recipient economy suffers
a downturn in activity or macroeconomic shocks due to financial
crisis, natural disaster, or political conflict, because migrants may send more
funds during hard times to help their families and friends.(Clarke &
Wallsten, 2004)
Remittances affect international capital market access is through the use of
structured finance techniques. Several banks in Malaysia like CIMB, Maybank
and International Monetary Fund (IMF) have been able to raise relatively
cheap and long-term financing from international capital markets via
securitization of future remittance flows. (Levitt and de la Dehesa, 2003).
 Large remittance inflows can lead to exchange rate appreciation and lower
export competitiveness. (Amuedo Dorantes & Pozo,2004)

12. Negative impacts of remittances
Remittances can create a moral hazard problem where by a
government fails to put in place economic measures to solve
deteriorating economy due to trade deficit or higher
unemployment as it anticipates receiving money transfers from
migrant workers (Kapur & Aldaba, 2004)
 Kapur (2004) argues that remittances are an important
mechanism to fund terrorism, civil wars and liberation
struggles. He points out that the support is based on migrant
organizations based in different countries such as Sir Lankan
Tamil migrants in Canada supporting the militant Liberation
Tigers of Tamil Ealam (LTTE)

13. INTRESTING FACTS!!!

14. 2
Why Use Competency-Based Pay?
Competency-Based Pay Supports
High-Performance
Work Systems
Strategic
Aims
Performance
Management

15. Competency-Based Pay
‘A payment system that relates salary
progression or a cash bonus to the display of
“competencies” by individual employees.
Systems originate in the identification of
competency, understood as the key attributes
and behaviours of employees that underlie
good performance in a particular organisation
or job.’
Heery and Noon (2001)

16. Different between Job Based Performance and
Competency Based Performance
•
Job-based pay is a more traditional
pay structure in which jobs are slotted
into salary schedules
•
Knowledge-based pay rewards
employees who set goals to learn new
skills and acquire new knowledge
•
Each position is assigned a pay range
based on job duties and the only
variance in pay is based on education
and seniority
•
Ambitious, self-motivated employees
typically prefer this approach because it
gives them a reason to focus on career
development
•
This offers employees a more
predictable method of pay, making it
easier to budget and plan for raises
each year.
•
Contribute to a systemic raising of the
bar for performance across all jobs.
•
Employers that use a skill-based pay
structure must provide continuing
opportunities for employees to gain more
skills and training. This allows a company
to reduce employee turnover and
encourage professional growth
•
Job-based pay structure may offer
opportunities for employee
development, but it is not specifically
used as a platform for employee
growth and wage increases.

17. Competency-Based Pay in Practice
Introduced competency-based pay because the previous
performance-related pay scheme was ambiguous and provided
limited incentive to improve
Because applying a normal distribution curve to performance
means that most staff are rated as average and there is little
differentiation in pay awards
Their competency-based pay scheme describes the ten critical competencies required
for each job family. Staff can be placed on three or four levels of achievement.
This means there is a motivation to demonstrate the competencies and these are fully
transparent. The system encourages flexibility and breadth, there by helping the
company get a broad base of experience.

18. PREVIOUS RESEARCH
 Khatri (2000) and Tzafrir (2006) found that compensation
based on performance has a significant and positive
relationship with non-financial performance where service
quality is one of the measures . Meanwhile, incentives and
pay were the most important determinants of performance
in the service sector, such as among banks (Bartel, 2004).
 However, there was only one study that examined the
relationship between conventional compensation and service
quality. Tsaur and Lin (2004) found a significant and positive
relationship between compensation practices and
responsiveness , assurance and empathy as dimensions of
service quality.

19. Why Use Competency- Based Pay
4 main ways in which employers were making the link between
competencies and pay:
 76 % of organizations that used competency-based pay used
competencies in design of the grading structure
 80% used them to determine promotions
 88 % used competencies to determine pay rises or pay cuts
 56 % used competencies to determine how an overall
pay rise should be divided into pay shares.
Adams (1999)

20. Competency-Based Pay
Organization – Related
Outcomes
Employee-related outcomes
 Greater workforce flexibility
 Enhanced employee
understanding of organization big
picture
 Increased effectiveness of work
teams
 Fewer bottleneck in workflow
 Increased worker output per
hour
Greater employee selfmanagement
Improved employee satisfaction
Greater employee commitment
 More career-enhancement
opportunities

22. WHY IT
HAPPEN??
Minimum wage policy takes effect on 1st January 2013, many companies
will be facing great issues in restructuring their compensation system in
order to stay competitive in the market. Ongoing debates on the impact
of the minimum wage policy, a proactive solution should be taken in
place. Productivity Linked Wage System (PLWS) establishes the link
between wages and productivity
WHAT IS PLWS??
PLWS is a system which establishes the link between wages and
productivity. The system will ensure that wage increases proportionate
with higher productivity, thus enhancing competitiveness at the
company. This dynamic compensation system will directly reflect the
company and individual performance to ensure organization
sustainability and individual motivation.

23. WHEN IT START??
PLWS was introduced in 1996 following an agreement between the
National Labor Advisory Council (NLAC) and the Human Resources
Ministry on the need for wage reform but has only been sluggishly
adopted since
ELEMENTS IN PLWS
The Fixed Component comprises basic wage, plus an annual increment. It provides
for income stability, acts as an indicator of the job value, reflects the cost of living and
is adjusted accordingly through the annual increment. However, the annual
increments should only form a small portion of the wage bill to meet the rising cost
of living.
The Variable Components wage incentive, based on productivity or profit sharing
formula. It determines the take home pay of an employee

24. ISSUES ON PLWS
COUNTRIES
USD Thousand
%
Hong Kong
65174
2.7
Singapore
55702
2.1
Taiwan
43 827
1.9
Malaysia
14 217
4.55
Thailand
4801
-1.1
China
4443
8.7
Philippine
3341
0.5
Indonesia
3040
5.0
India
2827
4.8
PRODUCTIVITY LEVEL AND GROWTH OF MALAYSIAN AND SELECTED ASIAN
COUNTRIES BY MPC PRODUCTICITY REPORT 2011/2012

25.  In the Asian region, Hong Kong, Singapore and Taiwan
productivity levels are much higher than Malaysia ranging from
USD 65,000 to USD44,000 compared to Malaysia only USD14,000
 In the OECD countries, 9 countries having highest productivity
levels ranging between USD97,000 and USD35,000, with Ireland the
highest and New Zealand the lowest levels.
 Malaysia’s productivity growth is increasing but productivity level is
low.
 Factors for low level of productivity:
- Dependent on large number highly unskilled labor (70%)
- Contribution of services sector to GDP as per cent of GDP is only
54%
- Low level of technological development
- Lack of R & D activities and innovation (Full time work equivalent
per 1,000 people)

26. To achieve productivity improvements by:
 Enhancing business environment to be more
conducive is among the factors that can improve
productivity. The need to ease in the public delivery
system and facilitate business investment
 Computers and related equipment are now the
fastest growing segment of tangible investment
 At the same time, a polarization in Malaysia labor
markets is taking place as skilled labor is in demand
whereas demand for low-skilled workers is declining

27. BENEFITS OF PLWS
Improve competitiveness
 Provide recognition for improved performance
 Creates openness and commitment
 Provides for equitable sharing
 Provides job security and stability in difficult times
 Improves the standard of living
 Enhances skills and knowledge
 Provides the drive for innovation

28. CONCLUSION OF PLWS ISSUE
• Going for higher income economy and to be competitive, Malaysia must
sustained its GDP growth of at least 6 per cent continuously by 2020
• Productivity growth must grow persistently at 5 per cent and productivity
level will also rise higher
• Employment rate must be maintained at full employment level
• Human capital must be upgraded through training and the number of
unskilled workers must be reduced
• Provide conducive environment to encourage FDI
• Encourage industries to invest in new technology and encourage innovation
that will increase productivity
• Promote R & D activities
• Encourage industry to implement productivity linked wage system (PLWS)

31. 3
HOW TO ATTRACT AND RETAIN GEN Y IN
COMPANIES?
 76 % of employers surveyed said an employee who works less
than a year is considered to be a job hopper.
 84% employer would not hire someone with a job hopping
tendency.
 At the ages of 25 and 34 surveyed think job hopping is a
healthy trend as they could get more experience from the
different jobs.
 Over 65 % of employees surveyed said they have worked less
than two years at their jobs, but most of them are already on
the lookout for a new job. From the survey, it also showed that
these young workers have switched jobs twice in the past 5
years.
Jobstreet and Kelly services survey, May 2013

32. Jobstreet.com, May 2013

33.  Ms. Chook Yuh Yng, country manager of JobStreet.com said, “If employees
job hop too often, nothing is substantial.
Employers are highly unlikely to hire someone with a job hopping
reputation, which will reflect in their resume.
 Companies are also incurring huge recruitment and training costs as they
race to meet their talent needs in a market dominated by job-hopping
generation Y workers.
High turnover in employees also has a direct impact on a company’s
productivity. Aspects contributing to this include lost time in
rehiring, interviewing and training, lost sales or a lost customer base.
 According to Kelly Services marketing director for Singapore and Malaysia
Jeannie Khoo, this trend is predominantly seen in Gen Y, and no, it's not
always just about the money.

34. EMPLOYERS
EMPLOYEES
GAP
It’s unhealthy Gen-Y
employees tend to quit
their jobs more easily
(84%)
Will not hire someone with
job hopping tendency
(83%)
No career development
(75%)
Provide training, better
working environment and
compensation (68%)
Job Hopping Trend
Job Hopping Mindset
Reason for Job
Hopping
How to Retain
It's healthy to get more
experiences from the
different jobs
(75%)
Intend to switch job within
1-2
years(49%)
Require more reward and
compensation(81%)
Provide competitive
rewards
based on
performance(36%)

35. ABOUT FRESH GRADS…

36. What employers think is lacking among unemployed
graduates
• Expectations – 64%
– Should ask not what the company will do for them but what they can do for the
company first
– Should know the market value (do research)
• Attitude – 60%
– Should demonstrate continuous learning/self learning
– Should demonstrate ownership/commitment etc.
• Good communication skills (English) – 56% & 52%
– Should be able to communicate & articulate well in the business language
– Should be able to work as part of a team
– Should show confidence
• Choosy – 38%
– Should know the market outlook
– Should be realistic about the ideal first job/ company

37. General Expectations from Companies of a
Good Graduate/ Hire
• Good values
– (e.g. honest, confident yet humble, innovative and creative)
• Positive attitudes
– (e.g. proactive, hardworking, high motivation and curiosity driven)
• Work-related skills
– (e.g. communication, entrepreneurship and leadership skills)
• Preparedness to work
– (e.g. industry-ready skills and ability to perform well in a working
environment).
Source: Unesco Report

38. Jobstreet.com.survey, 2009

39. OVERCOME ISSUES
 It is important that the education program offered are able to equip
graduates with the necessary skills to join the workforce including both
intellectual and practical skills
– (e.g. Technical or domain specific knowledge & skills)
– (e.g. Other important skills including Communications, Logical
thinking, Project
Management, interpersonal skills, General Knowledge etc.)
• It is also important to align to the needs of the Work Place, so that
Graduates
have the right “preparedness to enter the workforce”
– Internships is key
– Projects/ Coursework
– Involvement of industry in curriculum review, guest lecturing, providing
career talks etc.